Warning on national insurance blow for 6m as single flat-rate pension set to be announced for 2017

The Government will tomorrow confirm that a single flat rate state pension, equivalent to £144 in today's money, is set to be introduced for new pensioners from 2017 in a bid to simplify the system.

The current full state pension is £107.45 a week, but can be topped up to £142.70 with pension credit. The flat-rate pension will be paid only to new pensioners reaching state pension age from 6 April 2017, the government is expected to announce.

But around six million workers will face
higher national insurance payments in future as the practice of
'contracting out' the state second pension to employers is ended.

Hike: Millions of middle-class earners in the UK could face higher national insurance contributions as a result of government plans to introduce a new single-tier pensions system

Those affected are expected to include more than a million private sector staff enrolled in final salary schemes, and an estimated five million public sector workers.

The radical shake-up could lead to a hard-fought deal on public sector pensions being 'blown out of the water', a leading union has warned.

Brian Strutton, national officer of the GMB union, said a new flat rate pension should be fairer than the present arrangements, but warned of a 'very serious consequence' from the Coalition's plans.

He said: 'That is the increase in National Insurance contributions that employers and employees in defined benefit pension schemes will have to pay.

'For employers that is 3.4 per cent of the NI ranking earnings and for the six million employees affected it will be an extra 1.4 per cent. Most DB scheme employers and members will find this unaffordable so will need to renegotiate their schemes.

'A good example is the Local Government Pension Scheme which has just been reformed by unions and government and would face an unaffordable extra NI bill of several hundred million pounds.

'Just as the Treasury legislation to reform public sector pensions is going through parliament, the Department for Work and Pensions is proposing to blow it all out of the water by completely rewriting the state and occupational pension landscape.'

Mr Strutton said the Treasury and DWP needed to 'get their act together' to avoid reopening the public service pension deals, adding: 'Abolition of the contracting out NI rebate will impose a £6 billion new tax burden on workers and companies which may be a nice windfall for the Chancellor but is not fair to those who will have to pay more tax.'

Unions have been embroiled in a bitter dispute with the Government over its controversial public sector pension reforms, which led to a series of strikes.

An agreement was struck in local government, but unions in other areas have refused to sign up to new arrangements.

A White Paper is being published tomorrow setting out the new policy.Shadow pensions minister Gregg McClymont said the coalition had originally suggested the reforms would be introduced in 2016.

'The chaos surrounding the Government's relaunch gets worse and worse. These pensions proposals are just half a plan yet they are still delayed by a year,' he said.

'With the granny tax, this Government has already established a track-record of incompetence and secrecy so we will look at the detail, but the Government should come clean immediately and set out exactly who the losers are.'